Don't let it get away!

Let's face it: America is being held captive. That's the case that law professor Susan P. Crawford makes in her book Captive Audience, which describes the current monopolistic state of the telecommunications industry.

When it comes to the Internet, a technology that has unarguably revolutionized the world and the global economy, America severely lags behind other countries. We're talking about a technology that America created, yet the average American is relegated to inferior speeds compared with other parts of the world, and many rural areas don't even have broadband service.

A sad status quoIn many ways, Internet access can be considered a necessary utility nowadays, much like electricity. Unfortunately, the people who can afford it are paying too much, while there's still a large chunk of the population that can't afford it at all.

One reason for this sad status quo is that the sector inherently requires an oligopoly structure. Not everyone can afford spending $19.7 billion on infrastructure, which is what AT&T (NYSE: T) dropped on capital expenditures last year, in addition to the $20.3 billion spent in 2011.

Along the way, the industry became segregated into wired and wireless sectors. Comcast (NASDAQ: CMCSA) and Time Warner Cable (NYSE: TWC) dominated the wired side, while AT&T and Verizon (NYSE: VZ) primarily call the shots in wireless.

With wired connections, most of the networks around the country are built with antiquated copper wires. Some companies have built high-speed fiber optic networks, but that's a costly upgrade. Verizon began building its FiOS network in 2006 but has since reversed course and won't expand beyond its current obligations. It simply wasn't worth it to invest in FiOS, since it would still be too hard to compete.

Barring a consumer uprising, there's little incentive for wired incumbents to invest heavily in fiber optic networks when they can hinder competition in other ways.

Liberation!The search giant's gigabit fiber optic service promises Internet speeds up to 100 times what the average American has and represents a truly disruptive threat to the wired telecom sector.

Source: Google.

Thus far, the company's big push into becoming an Internet service provider, or ISP, has mostly been relegated in Kansas City, which straddles the state line between Kansas and Missouri. Kansas City has a little over 600,000 people, combining both sides. The company just announced its plans to expand Google Fiber deep in the heart of Texas, bringing the service to Austin. The Live Music Capital of the World boasts a population of more than 820,000.

For fortunate residents within Google Fiber's growing footprint, the decision is a no-brainer compared with current offerings. Google hasn't finished pricing in Austin yet, where I live, but I'm currently paying about $60 per month before taxes and fees for a 20 Mbps connection from Time Warner Cable. The Kansas City pricing is $70 per month for a Gigabit (1,000 Mbps) connection. Boost my speed by 50 times for an extra $10 per month, or 17%? Do you even have to ask?

As soon as Google Fiber is available to me in mid-2014, I'll be promptly dropping Time Warner, and I imagine armies of my fellow Austinites will follow suit.

At a minimum, incumbents will be forced into action to respond to the new competitive threat. Literally hours after Google's announcement, AT&T announced intent to build up its own gigabit fiber optic network in the city. Hours. Ma Bell said nothing of pricing or timing, but clearly it's concerned, as it should be. AT&T will expand if it can get the same terms and incentives as Google.

AT&T currently operates a hybrid U-verse network in Austin; it runs fiber optic cables through neighborhoods but then runs copper from the main line to the house. I switched from U-verse to Time Warner Cable years ago because of some performance issues I was experiencing. Two weeks ago, the company sent someone to try to win me back to U-verse. My response? "Come back when you build a full fiber network, and I'd switch." This is a true story; maybe I should prepare for another visit.

The net result of the competition will be that consumers eventually get much faster connections, and monthly bills will only moderately increase. Any way you slice it, the consumer wins.

Patience is a virtueStill, Google's liberation is going to take time. Between Kansas City and Austin, that's only 1.4 million people in those metropolitan areas, or less than 0.5% of the 315 million Americans in the United States. Even within those cities, not everyone is covered, and the rollout is slow and expensive.

Analysts estimate that Google's first wave of network investment will run $84 million to reach almost 150,000 homes in Kansas City this year. A larger-scale expansion to 300,000 homes could double costs to around $170 million. A nationwide rollout could cost up to $11 billion. Google didn't specify where it would start in Austin but said it would begin gauging interest and start with high-interest neighborhoods.

It's now been more than two years since Google's first Google Fiber announcement. With only two areas on the list, perhaps wired cable providers don't think the threat is imminent. Perhaps they're right. Consumers need to start speaking out against slow speeds and high prices in order to catalyze change.

Give me liberty, or give me gigabit fiber optic service.

As one of the most dominant Internet companies ever, Google has made a habit of driving strong returns for its shareholders. However, like many other Web companies, it's also struggling to adapt to an increasingly mobile world. Despite gaining an enviable lead with its Android operating system, the market isn't sold. That's why it's more important than ever to understand each piece of Google's sprawling empire. In The Motley Fool's new premium research report on Google, we break down the risks and potential rewards for Google investors. Simply click here now to unlock your copy of this invaluable resource.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

And what would you do with a gigabit connection that you can't do with a 20MB/s connection? Don't get me wrong, I'm all for threatening the entrenched cable / wireless companies to improve consumer options.....but I found this piece (linked) about the google fiber-optic project to be interesting. I'm not sure what I'd do with it either. I can already stream HD MLB games on my PS3 while surfing the internet (possibly streaming netflix) on my comcast broadband.....

I keep seeing the "What do you need a gigabit connection for?" comment. A very myopic view. Even with today's services as an example for a family of four: Little Jimmy playing an online game on his PS3, Suzy the teenage daughter is Skyping and checking her Facebook in the other room, Dad's streaming a high def baseball game, and Mom is streaming her favorite show on Netflix in Hi-Def. That uses up bandwith real fast, not to mention data caps. Youtube, Skype, and Netflix would not have been possible on dial up, but is now common place. Gigabit connections bring possibilities neither of us can imagine.

I remember the big argument for deregulation in the telecom industry was how it would foster competition and be best for consumers. Thirty years on, we're still waiting for that benefit, while the monopolies treat their customers like dog - think AT&T, Comcast, and Time Warner.

While Time Warner has upgrade my download speeds a few times over the past few years, in small increments: 2mb, 7mb, 10mb, 15mb. The Upload speed has been a Pathetic Joke! (316k, 1mb). The lack of competition is whats killing Speeds in the US. I have RCN Cable in my area, but Time Warner Pays my Landlord to keep the out of the building. So I'm stuck with Time Warner. Because without Competition, the only thing providers increase, is the PRICE.

These speeds are misleading. I check my speed online and the speed test says 25 mb/sec. down, but I have never seen a download go faster than 3 mb and usually the norm is about 1 to 1.5, What's the use in having the speed if you can't use it?

Having said that, this is going to be the biggest thing to hit the cable/broadband industry ever. The unlimited cloud DVR service they have sounds great and you get a free Nexus 7 as a remote when you sign up.The internet we get now with the regulars (comcast, time warner, cablevision, etc.) is going to be ridiculously cheap in order to try and keep up with Google. We're talking dial up cheap. The only problem is the time factor. Google may end up taking too long and wearing out the "cool" factor.

I am paying almost $60 a month for what TWC calls 15 Mbs broadband service. The only time my speeds even come close to that rate is during their yearly sweeps. Is Google going to do as TWC and only give use super fast broadband one month out of a year, and return it to their normal some what faster than dial-up?

Google Fiber gives you the option of FREE Internet (no TV or phone) for $0/mo for at least 7 years, with a $300 connection fee. That is a little over $1.82/mo. So, CommonScents, it is not JUST about 20Mb vs a gig, but also about getting an affordable Internet connection (although slower than the $70 plan) to those who cannot afford it. Can't wait until they hit my neighborhood in the fall. Still deciding which plan I want!!

So there are several problems with this. People saying X Y and Z person comsuming all this data. #1) People need to disconnect from all this crap a LOT more frequently, and start learning what the word "family" means again. #2) Google is the government. Everything they do, they tie to you, and with that, they can crucify you in the court of law...give it time. With that being said #3) Everything you do, WILL be tracked, recorded, and submitted to government agencies. You think I'm wrong? What does Facebook's Mark Z. have ANYTHING to do with and be a part of being in The White House. Who gains from this? Of course, it is an information cow about 1 in 6 people on the planet. What makes you think Google is ANY different?

Let's not think any company is so altruistic. Google would like to liberate the $$ I am paying to TWC so I can freely give them to Google. Which, I would gladly do!

But 'America' as in the you's and me's that don't live in Austin, TX or Chicago IL. or other places that Google or Verizon FIOS or AT&T Uverse don't see as the paths of least resistance will be subject to cable for 10-20 more years.

Fiber to my house in updstate NY 20 minutes from the state capital? I have been waiting for 4 years for that sales call so I could sign away my $150/month. The first company here will get my business.

However, in the meantime, if the immediate, easy ROI isn't there for Google or Verizon, or if there is aany resistance they will lay their fiber elsewhere.

It won't matter to me whether or not they put fiber optics in my neighborhood. My main complaint about other service providers is the stupid usage cap! Why the hell should I pay $60.00 to $70.00 a month and have to deal with a 250gig usage cap?I am mad as hell that AT&T and Suddenlink boasted no cap over and over again and then lied by putting in a stupid cap! These are the two ISP's I can only use atm and I am really stressed having to keep going to my ISP website to see where I am because its a $10.00 charge per 10 gigabit past my cap. I have family members that use the internet and between the 5 of us we can't enjoy netflix and other movie services because of this. I am about to just give up on the internet, I really don't need it and can stay busy outside.

Townsenddr , Lower prices may come of this but you still have usage caps. Go ever to Europe and ask around to the people who already have fiber optic internet, they do not have a usage cap. Greed in America is terrible and its no wonder were behind other countries.

Google will find out quickly the grass isn't greener on the otherwise of the fence. That will happen as soon as they figure out the cost of a tangible workforce that has to actually talk to people instead of disseminating other people's thoughts and ideas.

Kansas City. Kansas. Missouri. Two separate cities in two separate states, not one city that straddles two states. When have you ever heard of a single city that occupies two states?

As far as the Google Fiber goes; yes, I've signed up for it. I've got AT&T and most of the time I can barely surf the internet and stream anything from Netflix simultaneously. Downloads are hideously slow and outages have been often. Time Warner wasn't much better, just more expensive with less competent customer service representatives.

To suggest that At&t et al are unhappy with their situation is naive. They are loving life, they've captured the market using legislative nonsense to keep out the competition. Whoever controls the cables is incredibly powerful, and foolishly the FCC began handing out various pieces of bandwidth to the different bidders. Nonsense, anyone should be able to use any bandwidth they choose. Hopefully the free market buries these dinosaurs but I am skeptical

Report This Comment

Sending report...

Evan is a Senior Technology Specialist at The Motley Fool. He was previously a Senior Trading Specialist at a major discount broker. Evan graduated from the University of Texas at Austin, and is a CFA charterholder.
Follow @TMFNewCow